Credit Card Rewards 101

Credit cards get such a bad rap, but they can be incredibly helpful in providing a little extra cash when the budget is tight. This in-depth post teaches you everything you need to know about credit card rewards, including how to make money with credit cards AND stay out of debt!

This post is sponsored by Discover, however, all opinions and smart use of credit cards are 100% mine.

Can I be honest with you? Actually, I always am…..but today I might step on a few toes.

I get really tired of all the frugal and finance gurus who tell you the only way to financial freedom is to cut up your credit card. If you can’t discipline yourself enough to not spend what you don’t have, then fine. Cut up your card, put it in ice, or whatever you have to do to avoid debt.

But for many of us, I don’t think it requires such extremes.

In fact, I use credit cards all the time and continue to stay out of debt. Why? Because I use them responsibly and pay them off, in full, every single month. I don’t pay interest and I don’t pay late fees {except for the occasional oops!}. And I treat my credit cards like cash by tracking every single penny I spend.

Possibly the best argument for using credit cards though {besides building your credit} are the rewards. I have successfully earned almost two thousand dollars during the past 4 years just by using my credit card. Yes, the credit companies are paying me to buy items I normally would anyway!

I say all this not to gloat, but to show you how easy it is to “earn an income” off your credit card. But like anything, you still have to be smart in how you use them. Here are my top tips to take full advantage of credit card rewards, without sacrificing your self-control.

1. Don’t overspend, just to gain rewards

If you charge purchases to your credit card just to get cash back, the “earning an income” thing is not going to work. However, I understand how easy it could be to fall into that trap.

Many credit cards have rotating shopping categories each quarter where you can earn 5% back in things like home improvement, restaurants, groceries, etc. I personally like to keep a little card in my wallet telling me exactly which purchases are up for the 5%, so I know the best time to use my credit card.

But let’s say the credit card company is offering 5% cash back in the dining category this month. I would be doing myself a major disservice if we went out to eat just for the rewards. However, using the credit card instead of debit or cash for a weekly eating out treat? Totally fine.

You also shouldn't use a credit card for every single purchase, unless you have a system in place to track it. Rewards might add up quickly, but it’s easy to lose track of what you’re charging pretty quickly too. Start small by only charging gas or travel purchases until you get the hang of your card and how it works.

Always, always treat your credit card like cash!

2. Decide if the rewards are worth it

Credit cards that only give you 1% cash back are nothing compared to those that give 5%. It takes forever for all those rewards to add up! The same goes for air miles and hotel points. All too often, those enticing rewards you were promised expire before you even get the chance to use them.

Instead, go for the cards that offer at least 3-5% cash back, with options to buy gift cards, receive cash via direct deposit or Paypal, or a statement credit.

I usually prefer the statement credit option, but you could also set a specific goal to have all your credit card cash go towards a special trip, Holiday gifts, or stash it away in savings for later.

You should also read the fine print to make sure points don’t expire, and if they do, that you have a large enough cash back rate to compensate for it. It’s frustrating to log in and find out you almost had enough to get a reward, but the points disappeared because of inactivity, or because you didn’t reach a certain threshold in time!

3. Use introductory offers to your advantage

We receive credit card offers in the mail almost every week, and most of them just get thrown in the trash with hardly a second glance. Sometimes, though, the offer is almost too good to resist.

For instance, we’ve signed up for a credit card before because we knew if we made a certain number of purchases within the first 3 months of owning the card, we would receive enough points to get $300 worth of gift cards. The offer was quite convincing.

I have to admit, at first I was really hesitant about signing up for another credit card. It meant we would have another bill to pay, and another record to keep track of, but in the end we said yes because we had a few larger purchases we needed to make anyway. It just made sense! After the bonus reward period, we committed to making that card an exclusive business card, so we didn’t continue to spend.

If you find an irresistible credit card offer land in your hands, don’t disregard it immediately, but do make sure you have a bigger goal in mind on how to use it. Right now, Discover gives double cash back for the first year you have your credit card with them, so if you’re looking for a specific company to sign up with, I’d definitely consider giving them a try!

4. Check reward values before you redeem

Reward values are completely different than the cash back percentage range of 1-5%. Reward values are the amount each point translates into a reward. For example, 1 point = $1.

Like I mentioned before, I usually like to choose a statement credit over cash back and gift cards. However, there are times when the credit card company will run a sale on their gift cards, and I can actually get a $25 Lowes Gift Card for only $22 worth of points. In that case, I would most definitely go for the gift card, because it’s worth more than cash!

On the flipside, don’t get sucked into buying a gift card instead of cash when it’s actually worth less. Some quick math makes all the difference in deciding whether or not a reward is worth redeeming.

Credit cards get such a bad rap, but they can be incredibly helpful by providing a little extra cash when the budget is tight. I honestly would not be much of a credit card advocate if I didn’t think it was worth the rewards, but I see no harm in using a credit card the same as you would cash, as long as you pay your bill in full, every month. After all, it's not about the piece of plastic, it's about learning how to manage money better.

Oh, and that part about paying off in full every month, That is non-negotiable.

Do you have a favorite reward-earning credit card?

Discover stands by their mission to help consumers spend smart and save more, by providing the best products and programs for their money. In addition to branded credit cards, Discover also offers private loans, checking and savings accounts, certificates of deposit, and money market accounts. You can learn more about Discover HERE.

Disclosure: Some of the links in the post above are affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. Read my full disclosure policy here.

Just one more thing:

If you ever see yourself borrowing money down the road — whether it's for a home, car, or business — you'll want to have a credit score that is squeaky clean. Here's how to build your credit score from the ground up, especially when you have little or none to start!

Comments

I agree completely, Kalyn! My husband and I are incredibly frugal and we use credit cards, too. If you are responsible to pay them off every month, then I see no problem with it. The “free” money rewards are wonderful. We use Discover as well, which I like for their cashback promotions and the ability to cash it out or buy discounted gift cards. I like giving Shutterfly Christmas gift cards to my sisters, when I can buy a $25 gift card for only $20. We also have a Visa card that works with our local Marathon gas station and earns us at least one $25 free gas gift card every month. We save those gift cards up to pay for gas on our summer travels. Credit cards are just a tool. It’s all in how you use them.

I appreciate this post, as I also get tired of those who insinuate credits cards are evil and you should totally avoid them. Yes, I’m fully aware of how they can get you into financial trouble or tempt you into buying things you shouldn’t just because you can use credit and end up paying way more in the long run because of interest. I went down that road in college and young adulthood! However, I’m now in my forties and married to an accountant who keeps a close eye on our finances, and while we have a comfortable income and don’t necessarily have to watch every cent, we still try to practice frugality for the most part, and we try to never carry a credit card balance that we can’t pay off. However, we just recently started using our Discover card for pretty much all purchases that we would typically use our debit card for because of the cash back rewards. We monitor our expenses by writing them in our check register (making sure to denote that they were credit card expenses) so the money is already accounted for. The cash rewards are applied to our Amazon account, where we shop frequently for items that we can’t buy locally or are a better deal on Amazon, like books, dance shoes, refrigerator filters, just to name a few. Because we use our credit card frequently, we often have enough in rewards to end up getting these items free or greatly reduced in price, and for the most part, they are practical purchases.

I love this post. I use our Costco card like a debit card (it lets me pay the balance in full every night). Our last rebate check was over $500 and it was for things we would buy anyway – gas and yummy $5 rotisserie chickens. SCORE!

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Hi, I’m Kalyn—a recovering perfectionist who nerds out about organizing systems, personal productivity, and helping you prioritize what matters over the pressure to do it all. I have a feeling we’re about to become the best of friends! Learn more >>